Let's go to Graceland: Real Estate Investing in Memphis

At Coffee Clozers, we like to shoot from the hip as much as the next man. For those of you that concur with this philosophy, Memphis, TN may just tickle your tummy. Be forewarned though - like with any shot from the hip - you can get burned. Take the God-awful Elvis movie from last year, with its whacky transitions and out-of-place rap music - a prime example of a movie-style that should have remained firmly holstered. Memphis real estate is much like this. Pick the wrong street because you failed to look up from your firework-emitting spreadsheet that boasted 25% Cash on Cash Returns, and you too will end up like Colonel Tom Parker - ferociously in debt, with a voice permanently resembling that of a drunken leprechaun.

But - if it all possible - don't let that discourage you! Yes, the city has its fair share of crime, but many seasoned investors have turned such challenges into opportunities for immense cash flow. The key here lies in savvy investments and strategic planning. So, if you're willing to navigate the gritty and highly rewarding path of Memphis real estate, you're in the right place.

Top Neighborhoods for Investment

1. University Our first stop on the Memphis investment tour is the University area. It's a vibrant neighborhood that is generally safe, but can see a smattering of the crime that is typical for a city of this size. What makes the University district particularly appealing is the raft of classic university amenities that come with it - think libraries, sports facilities, and a plethora of restaurants & cafes. Plus, with a constant influx of students and academics, the demand for rental properties remains high. So, while you might encounter the occasional hiccup, the potential rewards make this neighborhood a worthy consideration for your investment portfolio. University districts often do well on appreciation as colleges enjoy spending vast amounts of student-borrowed money on BS artsy-fartsy oddly-shaped facilities that are apparently good for mystique. Whilst these modern art masterpieces add very little intrinsic value of their own, they seem to give property prices a kick, which is all well and good once you're in the market. In terms of cash-flow, there's always 1 or 2 nice options in the area (see the image below). As for market stats, we're working with a $135k median sale price according to Redfin. Appreciation was down by 50% YoY between Sep. '22 - Sep. '23, but only one home was sold so it's not a reliable piece of data.

2. Uptown Moving swiftly onwards, we have the somewhat trendy neighborhood of Uptown. This area is really divided into two parts. The southern half (closer to Downtown) is just across the bridge from the very wealthy Harbor Town area, and is a hotbed of modern development. What stands out is an ambitious Soviet-style 5-year plan aimed at transforming this area into a thriving, vibrant community (they worked for Stalin, so I'm sure they'll work in Uptown-Memphis). This plan is already coming to life, with a mix of residential and commercial buildings springing up all around. As you start to walk 15 minutes further north, the story becomes different however. Below is a property that has been recently renovated, has 12% estimated Cash on Cash Return (20% down, 7.7% interest rate), but its been sitting there for over 4 months at the time of writing this. Why? See for yourself.

Whilst this property looks fantastic on paper (including the interior), this is the exact thing you have to be careful of. Lovely looking property, great cash-flow, but a pretty awful looking area. For this particular neighborhood, it seems as though if you stay south of the Soul & Spirits Brewery (breweries always save the day), then you should be amongst the new developments. Anything further north should be approached with increasing caution. The lesson here? Always go in person to see the areas you're investing in! On the data side, we're seeing median prices of $240k and YoY appreciation from Sep. '22 - Sep. '23 of 20% according to Redfin

3. Sea Isle Park This up-and-coming area has garnered considerable interest from potential homebuyers and investors alike. The neighborhood is marked by the recent arrival of a Whole Foods Market, and is also home to the classic combination of bougie steakhouses, CrossFit gyms and overpriced Juice joints. As you might expect, the median household income in Sea Isle Park is notably high, ranging between $80,000 and $115,000. This, coupled with the area's steady development, denotes a vibrant community with high living standards. From an investor point of view, an excellent strategy here is the famous "find the worst property in the best neighborhood". For on-market properties, nothing really cash-flows. The median house price is $276k and YoY appreciation from Sep. '22 - Sep. '23 is at 4% according to Redfin. On the other hand, there are a few distressed off-market properties to choose from for those so-inclined.

4. Berclair Last but not least, we have Berclair - our goldilocks zone. This area offers a harmonious blend of safety, convenience, and affordability. Here you'll find a relatively low crime rate and a few classic amenities like a Starbucks and Planet Fitness. The investing landscape in Berclair provides a favorable cash flow scenario, with on-market properties hovering between -4% to +4% Cash on Cash Return. Considering current interest rates, this is not a bad starting point. Just think where you might get to if you combine a cheeky lowball offer with a refinance when rates eventually go down! The combination of a stable tenant pool, fundamental amenities, and a safe living environment make Berclair one of our top picks for the city of Memphis.

Conclusion

In summary, the landscape of real estate investment in Memphis presents a spectrum of opportunities, each with its own set of benefits and challenges. From the more affluent Sea Isle Park to the budding potential of Berclair, investors are met with a variety of options to consider. However, it's crucial to approach with a discerning eye, identifying and capitalizing on those hidden gems in the rough. It's true that there are areas that pose risks, and have less desirable properties. Yet, with proper research and informed decision making, the 'good' far outweighs the challenges. Plus, don't forget that we're in 'lowball' season - so get your negotiation hat on, and don't be afraid to have people hate you!

All that matters is the deal.